Mid-Day Report: Dollar Remains Pressured Despite Better than Expected ISM

Market Overview | Written by ActionForex.com | Jul 01 08 14:29 GMT |

Dollar is lifted mildly in early US session after better than ISM manufacturing index but remains generally pressured as oil price is back near $143 a barrel after an IEA report said that supplies would remain tight despite record prices and reduced demands. After 4 months of contractionary reading, the ISM manufacturing index finally recovered back to above 50 at 50.2 in Jun, signaling mild expansion and that the downturn in the economy is, at least, not worsening further. Price paid component surged to 91.5, confirming the underlying upstream inflationary pressure. However, note that the employment component deteriorated further to 43.7, deeper into contraction region, thus countering the positive effect of the headline index. Construction spending dropped -0.4% in Jun, slightly better than expectation of -0.6%.

Technically speaking, there is no sign of short term reversal in the greenback yet. At least, the dollar is still held by near term resistance against major currencies. Though, the greenback does recover impressively against Aussie and Loonie. Elsewhere, yen is still bounded in tight range but so far, yen crosses are still expected to dip further after completing the current consolidation.

Data from Eurozone saw unemployment rate was unchanged climbed slightly to 7.2% in May. PMI manufacturing was revised slightly up to 49.2. Data from Germany were solid, with retail sales climbing 1.3% mom, 0.7% yoy, unemployment rate dropped slightly further to 7.85%, with -38k drop in unemployment count. German PMI manufacturing was also revised up to 52.6 in Jun.

UK PMI manufacturing index dived to 45.8 in Jun, hitting the lowest reading since Dec 2001. Nationwide house price dropped further by -0.8% mom in Jun, with -6.3% yoy fall.

Aussie remains pressured after RBA left rates unchanged at 7.25% as widely expected. More importantly, the accompanying statement sounds confident that "demand growth will be moderate this year," balancing the "concerning" inflation outlook. While inflation is likely to remain "relatively high" in short term on rises in global oil prices, it's believed to decline over time. The statement suggests that interest rates will remain at a 12 year high of 7.25% for considerable period of time.

Japanese Q2 Tankan survey showed confidence among businesses dropped to the lowest in almost five years. Big manufacturer confidence tumbled sharply from 11 to 5 in Q2 but was above consensus of 3. Non-Manufacturing confidence dropped from 12 to 10, also above consensus of 8. Q2 capex rose more than expected by 2.4%.

EUR/USD Mid-Day Outlook

Daily Pivots: (S1) 1.5710; (P) 1.5774; (R1) 1.5816; More

At this moment, EUR/USD is still bounded in consolidative trading inside tight range below 1.5836. With an intraday top in place, further sideway trading could be seen. Nevertheless, further rally is still in favor as long as 1.5718 minor support holds. As discussed before, at this moment, it's uncertain what form of pattern will the consolidation from 1.6019 eventually develop into. 1.5843 remains a key near term focus. Break of this resistance will add favor to the case that consolidation has already completed at 1.5302 and will bring stronger rise to retest 1.6019 record high first. On the downside, below 1.5718 minor support will flip intraday bias back tot he downside for 1.5468 support first. Break will confirm that EUR/USD has started the final leg of triangle towards 1.5302 support to complete the consolidation from 1.6019.

In the bigger picture, a medium term top is in place at 1.6019 after meeting 1.6 psychological resistance. Subsequent sideway consolidation should be close to completion, it not finished already. As mentioned above, above 1.5843 will indicate that such consolidation has completed. Further decisive break of 1.6019 will confirm this case and bring rise to 61.8% projection of 1.4309 to 1.6019 from 1.5284 at 1.6341 first. On the downside, while another setback could still be seen before completing the consolidation, downside should be contained above 1.5302 support. Break of this support level is needed to switch to the case that price actions from 1.6019 are developing into deep correction to test 1.4966 cluster support.

Economic Indicators Update

GMT	Ccy	Events	Actual	Consensus	Previous	Revised
23:50	JPY	Japan Tankan big manufacturing Q2	5	3	11
23:50	JPY	Japan Tankan non-manufacturing Q2	10	8	12
23:50	JPY	Japan Tankan capex Q2	2.40%	2.00%	-1.60%
04:30	AUD	RBA rate decision Jul	7.25%	7.25%	7.25%
06:00	EUR	Germany Retail sales M/M May	1.30%	0.80%	-0.60%
06:00	EUR	Germany Retail sales Y/Y May	0.70%	-1.10%	-1.00%
06:00	GBP	U.K. Nationwide hse price M/M Jun	-0.90%	-1.00%	-2.50%
06:00	GBP	U.K. Nationwide hse price Y/Y Jun	-6.30%	-6.40%	-4.40%
07:30	CHF	Swiss SVME PMI Jun	54.9	55	55.7
07:55	EUR	Germany Unemployment rate Jun	7.85%	7.90%	7.90%
07:55	EUR	Germany Unemployment change Jun	-38K	-15K	4K
08:00	EUR	Germany PMI manufacturing Jun	52.6	53.3	52.3
08:00	EUR	Eurozone PMI manufacturing Jun	49.2	49.1	49.1
08:30	GBP	U.K. PMI manufacturing Jun	45.8	49.8	50
09:00	EUR	Eurozone Unemployment rate May	7.20%	7.10%	7.10%
14:00	USD	U.S. ISM manufacturing Jun	50.2	49	49.6
14:00	USD	U.S. Construction spending Jun	-0.40%	-0.60%	-0.40%
		Canada Market holiday